• Title/Summary/Keyword: Optimal Debt

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A Study on the Methods for the Prevention of Fraud in Korean Export Insurance in the Context of Export Credit Guarantee Schemes under O/A Negotiation (수출보험사기 방지를 위한 우리나라 수출신용보증제도 개선방안: O/A 매입방식을 중심으로)

  • PARK, Seung-Lak
    • THE INTERNATIONAL COMMERCE & LAW REVIEW
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    • v.77
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    • pp.113-144
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    • 2018
  • This study explores how to prevent the fraudulent export financing and its subsequent export insurance fraud in relation to O/A negotiation. Under the traditional letter of credit(L/C) transactions, the banks, as a negotiation bank, can extend trade financing to the exporters through negotiation of draft and/or shipping documents. Under the O/A transaction scheme, however, bank cannot ascertain existence of trade performance and it is much riskier to extend an advance financing to the exporters before the buyer sends confirmation of debt. In O/A negotiation. some exporters tried to fraud banks by falsifying the shipping documents and the size and gravity of this fraudulent export financing were huge. Therefore, this study examines the banking process in O/A-based trade financing, documents examination process, the negotiation of instruments, treatment of trade financing in export credit guarantee, most importantly, explores what could be the criteria for appropriate treatment of account receivable to insure the safe transfer of account receivable. To maximize the benefit for optimum trade financing, the Bank of Korea established several Trade Finance Rules (refers to "BOK Rules") requiring that commercial banks should maintain optimal credit limits(so called, 'the principle of optimal loan') to extend the trade finance. The K-sure post-shipment credit guarantee programs and short-term export insurance program(EFF)can also facilitate 'the principle of optimal loan' principle.

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Case Study : A Real Options Approach to an Overseas Project Finance Deal (사례연구 : 해외 프로젝트 파이낸스 투자 사례와 실물옵션기반 투자 의사결정)

  • Byun, Jinho;Choi, Moon Sub
    • Journal of Korean Institute of Industrial Engineers
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    • v.39 no.5
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    • pp.429-439
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    • 2013
  • The Korean Veterans' Pension Fund has previously pre-purchased Gibril Tower on Business Complex in Dubai, UAE, via a project-financed construction investment. Although the property is near completion, the investor syndicate's attempt to debt-finance due arrears was foiled in Dubai central bank's credit control of real estaterelated loans. Accordingly, the investment coordinator offered an additional capital injection, a collateralized leverage, and a maturity extension to the syndicate. If the syndicate rejects the offer, they may risk a nearcomplete capital loss and a possible default of the main contractor. Otherwise, the syndicate may still face uncertainties regarding interest receivables, principal re-payment, foreclosure, economic recession in Dubai, and the Islamic bond bill in the Korean Parliament. A possible exercise of the latter option may be due to the agency-prone nature of pension fund managers. Given these qualitative risk factors as at April 1, 2011, a real options approach-implied optimal decision suggests an extended and complete cash augmentation into the project finance deal.

A Review on the Contemporary Changes of Capital Structures for the Firms belonging to the Korean Chaebols (한국 재벌기업들의 자본구조변화 추이에 관한 재무적 관점에서의 고찰)

  • Kim, Hanjoon
    • Journal of the Korea Academia-Industrial cooperation Society
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    • v.15 no.1
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    • pp.86-98
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    • 2014
  • This study examined a long-standing issue with its perverse results in the Korean capital markets, such as any variant financial profiles over time, affecting capital structure for the firms belonging to the chaebols. It may be of interest to identify these components from the perspectives of international investors and domestic policy makers to implement their contingent strategies on the target leverage, since the U.S. financial turmoils in the late 2000s. Regarding the evidence from the three hypothesis tests on the firms in the chaebols, this research found that the control variabels measuring profitability, business risk, and non-debt tax shields, showed their statistically significant relationships with the different types of a debt ratio. While FCFF(free cash flow to the firm) showed its significant influence to discriminate between the firms in the chaebols and their counterparts, not belonging to the chaebols, BDRELY as the ratio of liabilities to total assets, comprising the enhanced 'Dupont' system, only showed its statistically significant effect on leverage in the context of the parametric and nonparametric tests. In line with the results obtained from the present research, one may expect that a firm in the Korean chaebol, may control or restructure its present level of capital structure to revert to its target optimal capital structure towards maximizing the shareholders' wealth.

The Effects of Economic Conditions on Capital Structure : Evidence from Korean Shipping Firms (경기변화를 고려한 해운기업의 자본구조에 관한 실증연구)

  • Lee, Sung-Yhun
    • Journal of Navigation and Port Research
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    • v.40 no.6
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    • pp.451-458
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    • 2016
  • Since Modigliani and Miller developed their theory of capital structure in 1958, it has become one of the most debated issues in corporate management. This is because the capital structure decision necessarily affects financial risk and the firm's value. Throughout the research, one of the most concerning problems is determining what factors influence the firm's capital structure. Since Korean shipping firms have been suffering from a long term economic recession, an optimal capital structure has become increasingly critical to survive in the shipping industry. This paper studies panel data on 46 Korean shipping companies since 2000 to find the factors that affect capital structure. The results suggest that a negative relationship arises between firm size, tangible assets, profitability and non-debt tax shields against leverage. Otherwise, it proved that growth opportunity has a positive relationship with the firm's leverage. In the research model during a booming shipping economy, growth opportunity and non-debt tax shield are not associated with firm's capital structure.

New Method to Calculate Cost of Capital for Telecommunication Market (통신시장의 투자보수율 산정 개선방안)

  • Kim, Chang-Soo;Chon, Mi-Lim
    • Journal of Digital Convergence
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    • v.10 no.4
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    • pp.181-190
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    • 2012
  • Cost of capital is one of the key factors of accounting regulation policy for telecommunication market. This paper aims at investigating efficient policy improvements concerning accounting regulation for telecommunication market focused on cost of capital calculation methods and its application. At First, cost of capital estimating method should be improved. In estimating the cost of equity capital, it is necessary to use benchmark method for Equity risk premium. It will reduce analytical errors caused by a rapid economic change and inflation. It is also more desirable to use debt premium adding method for the cost of debt capital. Optimal capital structure method may be considered a better way to estimates capital structure. Secondly, cost of capital estimating process also has to be reformed. Telecommunication industry changes rapidly so it does not reflect fast environmental changes. Therefore, cost of capital should be calculated every year. Cost of capital should be calculated by individual companies. There is information asymmetry between regulators and regulatees. Because of that cost of capital calculating process takes long time and cost a lot. To solve this problem, regulator should legislate on cost of capital calculation and then regulating companies report the calculating result. Lastly, major telecommunication companies are all listed now and it is possible to calculating it separately. We must continuously improve the estimating method and application of cost of capital and due to the fast growing of telecommunication industry. The process of determining the calculating method must be discussed and best method chosen.

An Empirical Study on the Relationship Between Firm Characteristics, Financial Security Indices, and Financial Profit Indices of Korean Private Venture Capital Firms (창업투자회사의 특성과 재무안정성 및 수익성지표 간의 관계에 대한 실증적 연구)

  • Lee, Joo-Heon;Kim, Sung-Min
    • Korean Business Review
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    • v.19 no.1
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    • pp.157-174
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    • 2006
  • In the past, because Korean private venture capital firms could get government support and subsidies, they could be survived in the market without having required management capabilities, advanced venture investment techniques, and professional supporting agencies and institutions. However, business environments have changed a lot recently. Now, only through identifying the optimal financial structures(the ratio of debt to equity), Korean private venture capital firms can minimize investment risks and ensure higher profits. Since Modigliani and Miller(1958) criticized the existence of the optimal financial structure, there have been numerous studies on the optimal financial structure of firms. However, there is no empirical study investigating the financial structure of venture capital firms. The purpose of this article is to analyze the relationship between firm characteristics, financial security indies, and financial profit indices of korean private venture capital firms. We gathered the data from various sources, including the web pages and the financial statements for 2003 and 2004. By using the student's t-test and the correlation analysis, we showed that there are differences in the current ratio and the ratio of net profit to net sales between new and old korean private venture capital firms. Even though it is known that korean private venture capital firms does not have enough knowledge and investment technique to compete with global venture capital firms, our result show that old korean private venture capital firms have already built some knowledge and understanding of venture capital investing.

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Corporate Bond Rating Using Various Multiclass Support Vector Machines (다양한 다분류 SVM을 적용한 기업채권평가)

  • Ahn, Hyun-Chul;Kim, Kyoung-Jae
    • Asia pacific journal of information systems
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    • v.19 no.2
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    • pp.157-178
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    • 2009
  • Corporate credit rating is a very important factor in the market for corporate debt. Information concerning corporate operations is often disseminated to market participants through the changes in credit ratings that are published by professional rating agencies, such as Standard and Poor's (S&P) and Moody's Investor Service. Since these agencies generally require a large fee for the service, and the periodically provided ratings sometimes do not reflect the default risk of the company at the time, it may be advantageous for bond-market participants to be able to classify credit ratings before the agencies actually publish them. As a result, it is very important for companies (especially, financial companies) to develop a proper model of credit rating. From a technical perspective, the credit rating constitutes a typical, multiclass, classification problem because rating agencies generally have ten or more categories of ratings. For example, S&P's ratings range from AAA for the highest-quality bonds to D for the lowest-quality bonds. The professional rating agencies emphasize the importance of analysts' subjective judgments in the determination of credit ratings. However, in practice, a mathematical model that uses the financial variables of companies plays an important role in determining credit ratings, since it is convenient to apply and cost efficient. These financial variables include the ratios that represent a company's leverage status, liquidity status, and profitability status. Several statistical and artificial intelligence (AI) techniques have been applied as tools for predicting credit ratings. Among them, artificial neural networks are most prevalent in the area of finance because of their broad applicability to many business problems and their preeminent ability to adapt. However, artificial neural networks also have many defects, including the difficulty in determining the values of the control parameters and the number of processing elements in the layer as well as the risk of over-fitting. Of late, because of their robustness and high accuracy, support vector machines (SVMs) have become popular as a solution for problems with generating accurate prediction. An SVM's solution may be globally optimal because SVMs seek to minimize structural risk. On the other hand, artificial neural network models may tend to find locally optimal solutions because they seek to minimize empirical risk. In addition, no parameters need to be tuned in SVMs, barring the upper bound for non-separable cases in linear SVMs. Since SVMs were originally devised for binary classification, however they are not intrinsically geared for multiclass classifications as in credit ratings. Thus, researchers have tried to extend the original SVM to multiclass classification. Hitherto, a variety of techniques to extend standard SVMs to multiclass SVMs (MSVMs) has been proposed in the literature Only a few types of MSVM are, however, tested using prior studies that apply MSVMs to credit ratings studies. In this study, we examined six different techniques of MSVMs: (1) One-Against-One, (2) One-Against-AIL (3) DAGSVM, (4) ECOC, (5) Method of Weston and Watkins, and (6) Method of Crammer and Singer. In addition, we examined the prediction accuracy of some modified version of conventional MSVM techniques. To find the most appropriate technique of MSVMs for corporate bond rating, we applied all the techniques of MSVMs to a real-world case of credit rating in Korea. The best application is in corporate bond rating, which is the most frequently studied area of credit rating for specific debt issues or other financial obligations. For our study the research data were collected from National Information and Credit Evaluation, Inc., a major bond-rating company in Korea. The data set is comprised of the bond-ratings for the year 2002 and various financial variables for 1,295 companies from the manufacturing industry in Korea. We compared the results of these techniques with one another, and with those of traditional methods for credit ratings, such as multiple discriminant analysis (MDA), multinomial logistic regression (MLOGIT), and artificial neural networks (ANNs). As a result, we found that DAGSVM with an ordered list was the best approach for the prediction of bond rating. In addition, we found that the modified version of ECOC approach can yield higher prediction accuracy for the cases showing clear patterns.

Capital Structure's Mean-Reversion and Long-Term Equilibrium (자본구조의 평균회귀현상과 장기균형)

  • Son, Pan-Do;Son, Seung-Tae
    • The Korean Journal of Financial Management
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    • v.25 no.3
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    • pp.33-78
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    • 2008
  • This paper empirically examines whether firms engage in a dynamic adjustment process toward target capital structure and, whether there is a target capital structure or mean reverting using the partial adjustment model while allowing for costly adjustment. Also we investigate the empirical determinants of optimal target capital structure in long term equilibrium. As a result, our empirical model captures at least several important features of capital structure behavior for Korean listed firms. First, Korean firms pursue target capital structure and also there is mean reverting phenomenon. Second, Non-Chaebol and small firm in adjustment speed is faster than Chaebol and large firm. Third, even capital market restricts the adjustment speed interestingly. Fourth, Korean firms have target behavior according to a degree of observed gap. Fifth, Korean firms close about one-fourth of the gap between their actual and target debt ratios within one year and thence targeting behavior explains far more of the observed changes in capital structure than market timing or pecking order considerations. Sixth, capital market is significant in determining optimal capital structure.

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Optimization of Multiclass Support Vector Machine using Genetic Algorithm: Application to the Prediction of Corporate Credit Rating (유전자 알고리즘을 이용한 다분류 SVM의 최적화: 기업신용등급 예측에의 응용)

  • Ahn, Hyunchul
    • Information Systems Review
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    • v.16 no.3
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    • pp.161-177
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    • 2014
  • Corporate credit rating assessment consists of complicated processes in which various factors describing a company are taken into consideration. Such assessment is known to be very expensive since domain experts should be employed to assess the ratings. As a result, the data-driven corporate credit rating prediction using statistical and artificial intelligence (AI) techniques has received considerable attention from researchers and practitioners. In particular, statistical methods such as multiple discriminant analysis (MDA) and multinomial logistic regression analysis (MLOGIT), and AI methods including case-based reasoning (CBR), artificial neural network (ANN), and multiclass support vector machine (MSVM) have been applied to corporate credit rating.2) Among them, MSVM has recently become popular because of its robustness and high prediction accuracy. In this study, we propose a novel optimized MSVM model, and appy it to corporate credit rating prediction in order to enhance the accuracy. Our model, named 'GAMSVM (Genetic Algorithm-optimized Multiclass Support Vector Machine),' is designed to simultaneously optimize the kernel parameters and the feature subset selection. Prior studies like Lorena and de Carvalho (2008), and Chatterjee (2013) show that proper kernel parameters may improve the performance of MSVMs. Also, the results from the studies such as Shieh and Yang (2008) and Chatterjee (2013) imply that appropriate feature selection may lead to higher prediction accuracy. Based on these prior studies, we propose to apply GAMSVM to corporate credit rating prediction. As a tool for optimizing the kernel parameters and the feature subset selection, we suggest genetic algorithm (GA). GA is known as an efficient and effective search method that attempts to simulate the biological evolution phenomenon. By applying genetic operations such as selection, crossover, and mutation, it is designed to gradually improve the search results. Especially, mutation operator prevents GA from falling into the local optima, thus we can find the globally optimal or near-optimal solution using it. GA has popularly been applied to search optimal parameters or feature subset selections of AI techniques including MSVM. With these reasons, we also adopt GA as an optimization tool. To empirically validate the usefulness of GAMSVM, we applied it to a real-world case of credit rating in Korea. Our application is in bond rating, which is the most frequently studied area of credit rating for specific debt issues or other financial obligations. The experimental dataset was collected from a large credit rating company in South Korea. It contained 39 financial ratios of 1,295 companies in the manufacturing industry, and their credit ratings. Using various statistical methods including the one-way ANOVA and the stepwise MDA, we selected 14 financial ratios as the candidate independent variables. The dependent variable, i.e. credit rating, was labeled as four classes: 1(A1); 2(A2); 3(A3); 4(B and C). 80 percent of total data for each class was used for training, and remaining 20 percent was used for validation. And, to overcome small sample size, we applied five-fold cross validation to our dataset. In order to examine the competitiveness of the proposed model, we also experimented several comparative models including MDA, MLOGIT, CBR, ANN and MSVM. In case of MSVM, we adopted One-Against-One (OAO) and DAGSVM (Directed Acyclic Graph SVM) approaches because they are known to be the most accurate approaches among various MSVM approaches. GAMSVM was implemented using LIBSVM-an open-source software, and Evolver 5.5-a commercial software enables GA. Other comparative models were experimented using various statistical and AI packages such as SPSS for Windows, Neuroshell, and Microsoft Excel VBA (Visual Basic for Applications). Experimental results showed that the proposed model-GAMSVM-outperformed all the competitive models. In addition, the model was found to use less independent variables, but to show higher accuracy. In our experiments, five variables such as X7 (total debt), X9 (sales per employee), X13 (years after founded), X15 (accumulated earning to total asset), and X39 (the index related to the cash flows from operating activity) were found to be the most important factors in predicting the corporate credit ratings. However, the values of the finally selected kernel parameters were found to be almost same among the data subsets. To examine whether the predictive performance of GAMSVM was significantly greater than those of other models, we used the McNemar test. As a result, we found that GAMSVM was better than MDA, MLOGIT, CBR, and ANN at the 1% significance level, and better than OAO and DAGSVM at the 5% significance level.

A Financial Comparison of Corporate Research & Development (R&D) Determinants: The United States and The Republic of Korea (한국과 미국 자본시장에서의 연구개발비 비중에 관한 재무적 결정요인 분석)

  • Kim, Hanjoon
    • Journal of the Korea Academia-Industrial cooperation Society
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    • v.19 no.7
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    • pp.174-182
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    • 2018
  • Given the ongoing debate in many aspects of finance, more attention may need to focus on corporate R&D expenditures. This study empirically tests financial determinants of R&D expenditures for NYSE-listed and KOSPI-listed firms. Three major hypotheses were postulated to test for corporate R&D outlay. First, proposed variables such as one-year lagged R&D expenditures, market value based leverage, profitability and cash holdings showed significant influence on corporate R&D costs for the sample firms. Moreover, financial factors inclusive of squared one-year lagged R&D expenditures, the interaction effect between one-lagged R&D expenditures and high-growth firm, non-debt tax shield, Tobin's q and a dummy variable to explain differences in accounting treatment between the U.S. and Korea, revealed significant differences between the two samples. Finally, in the conditional quantile regression (CQR) analysis for the R&D-related variables in relation to corporate growth rate, it was found that the NYSE-listed firms had a statistically significant linkage between growth potential and one-year lagged R&D expenditures at lower quantile levels. This study may shed new light on identifying financial factors affecting differences between the U.S. market (as an advanced market) and the Korean market (as an emerging market) regarding the optimal level of R&D investments for shareholders.